We have no way of knowing how this all ends. One problem is that the smartest solution””having Germany and perhaps a handful of other northern countries leave the euro for a new currency (the Deutche Mark 2.0, or a “neuro” for northern Europe)””would make life easier in the south. The south based euro would fall in value, but since debts and contracts are denominated in that currency, the adjustment would be the same as in a normal devaluation. This course would likely lead quickly to a new burst of growth in the south, though inflation and other problems would take a toll over time.
But the euro’s break up day would cause a lot of problems for Germany and its northern friends….
So we’re in an interesting situation. The crisis is crippling the south, but the south has no power to resolve the crisis. The crisis isn’t comfortable for the north but still looks less painful than the solution. So the north, which has the ability to resolve the crisis, doesn’t have the will to do it and the south, which has the will, lacks the ability.
Read it all (and please note that the Financial Times article by Wolfgang MÃ¼nchau which is mentioned, entitled “The riddle of Europe’s single currency with many values,” is indeed a must read as Mr. Read says).